AMZN: Bearish Wolfe Wave

Nice rally of nearly ten points in AMZN off the Cup & Handle low.

Yesterday morning was a gap up opening to a high of 180.42 (Orange #1) that got called back all the way to 178.51 in the first minute of trading, which filled the opening gap entirely. Throwing the long bomb on the first play of the game is exciting, but unless it's a Breakwaay Gap out of a pattern or above some level of resistance, those are "common gaps" and get called back more often than not.

Additionally, those big gaps up easily can turn into an ugly downside reversal if The Bulls don't hunker down and defend somewhere near Unchanged. That's what the AMZN Bulls did yesterday. They stepped up at UNCH and went into pattern formation, putting in the lovely Symmetrical Triangle, in orange, and breaking out of it. That breakout put rougly 182.00 IN PLAY. When the opening high of 180.42 got taken out to the upside, The Bulls got some help from The Bears, who were forced to Buy To Cover their shorts of the opening Gap Up. All that The Bears got on a pullback after 180.42 got taken out was 180.38, then they were squeezed higher again as the 182.00 target got MADE, and exceeded.

The Bulls managed a high of 183.30, below Key Resistance in the mid-184's basis the daily chart, then turned the ball over on a technical breakdown of a Bearish Wolfe Wave. Bearish Wolfe Waves have:

1. A strong directional Lead-In (white arrow)
2. A pattern that forms in the same direction as the Lead-In (in this case, up)
3. A Fakeout/Breakout at Wave 5 that puts the proverbial "everyone" wrong-footed.
4. A breakdown of the pattern and a move to Wave 6, which usually is relatively swift. Wave 6 is derived by connecting the high of Wave 1 and the low of Wave 4.

Al-lmost got to Wave 6.

The Wolfe Wave pattern in white also can be seen as a simple rising channel that broke down since there wasn't much of an upside Fakeout/Breakout at Wave 5. That's fine. The net effect is the same: some downside off the pattern breakdown.